Top 10 Digital Transformation Trends in Insurance
From IoT to machine learning, from dematerialization to personalization, from virtual reality to digital data collection. Here are the top 10 digital trends in insurance.
The world is changing digitally. A new era with less human interference is emerging. Rapidly developing technologies have wreaked havoc on their digital platforms. Autonomous vehicles, contactless payments, and chatbots that counsel people on handling their finances and assets are all on the horizon.
With seemingly successful yet straightforward ideas, Netflix, Uber, Ola, Amazon, and many other ideas have revolutionized respective market segments. The insurance business is adopting digital transformation to address the complex problems posed by consumers, regulatory, and technology landscapes.
What lies ahead as digital becomes the new normal, and how should insurance leaders prepare? Here are 10 digital transformation trends that will impact the insurance industry in the coming years.
What is Digital Transformation in Insurance Industry?
Digital transformation in the insurance industry is wide-ranging. It could entail fundamentally rethinking how a business provides value to clients, employees, and stakeholders. It could also involve introducing digital technologies to enhance current operations. Firms must clearly state their goals to make the most of their transition.
Insurance businesses can use digital transformation in a variety of ways. Some develop in-house capabilities by updating or replacing their internal core business software and platforms. This is one of the only methods to update your company's technology without always depending on outside sources. However, it can be pretty costly and time-consuming.
Top 10 Digital Transformation Trends in Insurance
Here are 10 digital transformation trends in the insurance industry.
Continued Rise of API Economy
An Application Programming Interface (API) is a set of rules that control how one piece of software communicates with another. APIs have recently increased as businesses seek to open their data and functionality to third-party developers.
APIs are being used in the insurance industry to develop new digital products and services. For instance, some insurers use APIs to deliver real-time quotes to consumers, while others use them to power chatbots and online customer support tools.
As the demand for digital integration rises, APIs (Application Programming Interfaces) will become increasingly common and used. Many established companies are now looking to make their data and systems accessible to outside developers to build new digital experiences and business models.
The need for agility, a shorter time to market, and the desire to access new revenue streams are the trends driving this movement. In the insurance sector, many insurers are releasing APIs to let outside developers create new apps and services on top of their foundational systems.
As insurers try to capitalize on the rising demand for insurance products delivered through digital channels, we anticipate seeing more of them use APIs in the future.
Increasing Accuracy with Predictive Analysis
Actuaries at insurance companies specialize in mathematically calculating risk to determine premiums efficiently. Actuaries can now more precisely analyze statistical trends that affect the potential financial outcomes of the company, thanks to the growth of big data and data analytics.
The data-driven insurance sector can use predictive analytics to:
- Find out what your company's current and future insurance needs are.
- forecast risk factors for various business verticals or lines of business
- Identify potential risks associated with business customer insurance cancellations
- Identify trends across multiple claim types
- Identify potential new clients using trend analysis
Predictive analytics, for instance, allowed insurers to quantify future trends, which led to them raising premiums or drafting further exclusions in response to the rise in ransomware attacks over the past year.
Shifting to the Cloud
The digital transformation in the insurance industry focuses on using cloud-based technologies to provide better customer experiences while lowering insurer overhead. Technologies that reduce costs for insurers also offer on-demand customer service that fosters loyalty. After a car accident or a natural disaster, customers don't want to wait on hold for a customer service agent.
Customers can communicate with their insurance company in real-time thanks to cloud-based, customer-facing technologies, which streamlines the insurer's operations and shortens the claims cycle timeline.
The Growth of Insurance Telematics
Telematics, commonly referred to as usage-based insurance (UBI), enables businesses to collect and analyze information about consumer driving behaviors, including speed, location, collisions, and more. Underwriting and risk assessment accuracy are then improved and made less expensive with this data. For instance, the premium will increase and vice versa depending on how riskily you drive.
Monitoring systems installed in automobiles today collect performance data on airbag deployment, harsh cornering, and many other parameters that enable telematics. Basing pricing models on a person's behavior helps make them fairer by personalizing them.
Additionally, there are other advantages of UBI for both parties: insurance companies can now draw in low-risk drivers, lower their claim costs, increase customer loyalty, and motivate their customers to drive more safely.
Use of Drones in Insurance
Drone use in insurance technology is a relatively recent development. It is anticipated that insurers will use drones extensively at various stages of the insurance life cycle. This involves gathering information to estimate risk before the issuance of a policy, assisting with preventative maintenance, and evaluating damage after a loss.
Farmers Insurance is a wonderful example of using this innovative strategy and deploying drones to support risk and damage assessment on houses. Drones can do reviews such as roof inspections and other evaluations, and they can subsequently upload their data to the cloud for analysis. This is another excellent example of how IoT and other technologies coexist in the insurance sector.
Chatbots and Other AI-Enabled Tools
On websites across most industries, including insurance, chatbots are assisting customers. These time-saving tools can pick up new skills as they work with clients and employees, gradually increasing their value. CSRs will save thousands of hours if the company will spend a little time programming their chatbot to answer straightforward, repetitive questions.
Imagine if your call center stopped receiving calls asking for details about the autobody shop, the status of medical bill payment, or the contact information for claims adjusters. Those are just a few instances of inquiries that your chatbot might be programmed to answer.
The chatbot uses AI and machine learning to remember the response when it encounters a question it can't answer. A human customer service representative takes over, effectively teaching the bot the answer and enhancing its usefulness.
The Rise of Digital Data Collection
The use of ineffective paper-pushing strategies in the insurance industry is nothing new. This is no longer feasible, though. Insurance companies must find ways to enhance customer satisfaction on this front rather than continuing to view inadequate paperwork as a necessary evil.
As per a recent study by Bain & Company, insurance companies typically only gather about 60% of the information required to underwrite a policy. The remaining 40% is either never collected or collected too late.
In addition to aggravating customers, this puts insurers at higher regulatory risk. Insurance companies must be able to quickly gather, analyze, and act on data in a world that is becoming increasingly digital.
And that's where the collection of digital customer data comes in.
Customers anticipate using digital tools to remotely complete nearly all (if not all) actions with their insurer, from opening an account to renewing a policy, as eSignatures and digital forms become more commonplace.
Insurers can increase process efficiency, boost customer satisfaction, and lower regulatory risk by changing how they obtain client data and signatures.
Wearable Devices are on the Rise
The popularity of wearable technology is also growing outside of the insurance sector. More people will want their insurers to support them with IoT-integrated solutions as they begin to own smart homes, cars, or wearables like fitness trackers.
As an illustration, an insurer might provide a smart car alarm that, in the event of an accident, automatically contacts the insurer's mobile app to provide assistance and send out alerts about any claims.
Insurance companies can offer wearable-based rewards to customers to encourage healthy lifestyles and policyholders to pay for more extended coverage periods. Over the coming years, these health programs are anticipated to grow significantly, particularly with Millennials.
Insurance providers must comprehend the claim trends that affect their clients. Wearable technology has many uses in the insurance industry, including fitness tracking, anti-theft insurance, and usage-based auto insurance.
Insurance companies can improve processes and risk prediction by using data and analytics from wearables, IoT devices, remote sensors, and other sources. Big data and sophisticated analytics will be given more attention in the future to provide accurate forecasts for policyholders' requirements.
Expansion of Digital Channels
The traditional method of selling insurance has been through physical channels like agents, brokers, resellers, offices, and call centers. The advantage is now shifting to the digital medium, though. To meet this demand, insurers are expanding their digital customer channels as consumers grow more at ease transacting business online.
Insurance companies now provide chatbots, virtual customer assistants, and even voice-based customer service in addition to conventional web and mobile self-service channels. As customer demand for self-service digital channels soars, more and more agents and brokers are switching to digital tools.
According to a survey of European insurance executives conducted in late April 2020, about 89 percent of respondents predict that digitization will accelerate significantly and that the channel mix will continue to change.
Offline procedures are increasingly being converted to digital ones. With the aid of technology like legally binding eSignatures or face-recognition and telemedicine, even products that occasionally require offline execution, like physical signatures and medical underwriting, are increasingly moving to digital.
Rise of Blockchain Technology
Since blockchain can bring transparency into transactions with good record keeping across various parties while preventing fraud or errors through immutability, insurers have been paying close attention to it.
Decentralization, where people take ownership of their data and decide how it is used, is another way blockchain is anticipated to impact the insurance sector.
Although it has been modest, blockchain will undoubtedly significantly impact the insurance sector over time. Several blockchain-based insurance-related ventures, including insurtechs that use this decentralized ledger for anything from fraud reduction to managing personal data, have emerged just this year.
Future investments in blockchain technology are anticipated to increase as more businesses realize its potential for various applications, including data security, operational cost reduction through the removal of middlemen, and the creation of smart contract-based currencies.
A fintech that has already significantly impacted other industries, such as lending, will also considerably affect insurance through blockchain technology and cryptocurrencies.
Benefits of Digital Transformation in the Insurance Industry
Implementing technological solutions is no longer a "nice to have" with the rate at which it is advancing. Companies must have it if they want to stay in the game. Customers will frequently select businesses that offer safe and prompt services when and where they need them. Digital transformation in insurance can enable insurers to meet customers where they are, whether for communication, policy administration, or claims.
The advantages of using the tools mentioned above are available to insurers, including:
Reduction in Service Cost
Going digital increases cost savings with more accurate underwriting driven by big data, AI, and predictive analytics.
Another opportunity for revenue generation is the speed at which new products can be brought to market thanks to digital transformation in insurance.
Flexible technology enables limitless experimentation and integration with distributors and digital partners.
All software solutions are secure because of encryption protocols.
Improved Productivity and User Experience
Implement only what is necessary immediately so insurers can expand as they go, introducing new tools and features only when necessary.
Importance of Digital Transformation in the Insurance Industry
Despite claims from competitors that the insurance sector is not a leader in adopting digital technologies, new competitors, innovative business models, and demanding clients are pushing the industry to do so. As a result, between 2022 and 2025, the insurtech market is anticipated to grow by about 45% annually.
The number of insurtech companies is growing, and they influence insurer change in two ways:
- Some insurtech firms are developing solutions for traditional insurers that take a customer-centric approach and target their pain points, such as inefficiencies in the auto, P&C, health/travel, life, and home insurance fields. These providers of insurance as a service assist conventional insurers in eliminating these inefficiencies to gain a competitive advantage.
- Other insurtech businesses, like Lemonade from the Netherlands, take a direct-to-consumer approach to upend the status quo. They compel established insurers to introduce user-friendly products and adopt digital technologies.
Insurance companies are expected to quickly launch pilot programs and roll them out in their organizations after the pilots are successful, as competitors rapidly implement new solutions. To achieve this, insurers must employ digital transformation in the insurance industry to make their data management and other systems agile.
We are seeing a change in the approach and strategy of the insurance business as a result of the digital transformation. With digitization, there has been significant progress in the automation of claims administration, insurance modifications, and compensation.
This ensures that insurance firms adapting to the new digital era will thrive by outperforming their competition. People that show up late to the party will see their prospects quickly decline.